Ripple XRP Under Increased Scrutiny as a Security

Troubles for the Popular cryptocurrency XRP and its foundation Ripple continue to mount up. Recently, new evidence emerged which could place the group under increased scrutiny. A document, now making it's away around the internet appears to show that Ripple, the company behind XRP, used the token to increase its wealth. Now, regulators want to take another look at the XRP project to determine if it is in fact, a security.

On Aug. 5, 2019, a group of investors filed a complaint against Ripple with the SEC. The report claims to provide concise evidence that Ripple used the XRP token to garnish huge profits. The report claims that the company currently is engaged in selling these tokens in excess of the need for profit.

If these allegations are found to be true, Ripple could see prosecution. Officials may want to prosecute under the sales of unregistered securities via the U.S. Securities and Exchange Commission’s laws. Specifically, the report claims that Ripple violated numerous securities laws in the state of California. The data put forth in the suit suggests that the company utilized the XRP brand to enrich themselves significantly.

The lawsuit points to a blurring of the lines between Ripple’s enterprise solutions and XRP. Notably, the report revealed that the firm holds the majority of the total supply of XRP. The company utilized its stake as a form of profit generation in a couple of key ways. For one, Ripple actively limited the supply of XRP to increase demand. Additionally, Ripple paid exchanges to list XRP with the intent of increasing its value

To grasp just how this strategy unfolded, you need to understand that Ripple is the largest holder of XRP. Notably, the firm will be for the foreseeable future. Consequently, just a one-cent increase in the price of XRP equals around $600 million in profit gained for the company.

Discussing these concerns, William Hinman, Director of the Division of Corporation Finance of the SEC made his case for the labeling of XRP as a security. He explained that whenever you have a third party that drives the expectation of a return, you are usually dealing with a security. These firms use the token to increase the value of the enterprise.

Ripple CEO Brad Garlinghaus

Hinman stated that the firm raised funds “in excess of what may be needed to establish a functional network.” For its part, Ripple stated that these funds went towards enhancing the functionality of the token's ecosystem.

To put those gains into perspective, you don't need to look any further than Co-founder Jed McCaleb. While McCaleb is no longer with the firm, he sells half a million XRP on a daily basis according to Bloomberg. Notably, other company officials engaged in this type of activity as well. However, in a recent interview, Ripple CEO, Brad Garlinghouse, adamantly denied that Ripple has any control over the price of XRP. He pointed to the losses incurred over 2019 as proof. Last year, Ripple slumped nearly 60 -percent from $0.51 to around $0.20.

XRP – What Tomorrow Holds

As one of the most popular platforms in the crypto space, XRP continues to see growing adoption. If the SEC were to label XRP a security it could have serious ramifications for those involved in the project. For now, investors continue to wait and see how the SEC's strategy plays out.